Spanish progress is convincing, more needed: Trichet

Reuters, FRANKFURT, GERMANY

European Central Bank President Jean-Claude Trichet said Spain was making progress in repairing its finances, he welcomed the recent drop in oil prices and he reiterated the bank’s opposition to eurobonds.

Spain’s fiscal and banking sector repair efforts have so far kept it protected from the eurozone debt crisis which has already claimed Greece, Ireland and Portugal.

“On the fiscal side, the government has been convincing,” Trichet said in an interview with Spanish newspaper El Pais published yesterday. “That being said, measures have to be followed up and the deficit target of 3 percent in 2013 is essential for credibility.”

He also gave Spain good marks for work on its banking sector, which some economists still fear could drag the country into the turmoil if defaults on pre-crisis real estate and building firm loans get out of control.

“Regarding the financial sector, there is a huge difference in perception compared with a few months ago, but work has not been finished there yet,” he said.

Trichet, who will leave the bank at the end of October, repeated the central bank’s opposition to a Greek debt restructuring, a move financial market see as likely, but one that some top bank members have said could trigger Lehman-like consequences in the financial system.

He also said it was “absurd” to suggest that Greece could quit the euro.

On the current economic outlook, he welcomed the recent better-than-expected growth numbers out of the eurozone.

The 17-nation currency area expanded by 0.8 percent in the first three months of the year, data showed on Friday, fueled by startling 1.5 percent GDP growth in Germany, while the French economy grew 1 percent, driven in part by consumer demand.

“It is no time for complacency, we have to be very cautious and we do not declare victory, but I think that’s [growth numbers] encouraging,” Trichet said.

He also welcomed the recent drop in oil prices.

“The decline in oil prices is good news,” Trichet said. “It reduces both the inflationary impact and the depressive effect of high oil prices on the economy. That said, there is a high degree of volatility.”